Long-Term Forecasts Are Mostly Worthless

Federal Debt Held by the Public by U.S. Presidents and party control of Senate and House, 1901 to 2010

Big picture analysis, and the predictions of calamities that are sure to hit down the road, are fun to read, but such long-term forecasting is almost always based on the favorite forecasting tool of scientists and economists – extending current trends in a straight line into the future, without considering that trends only continue until conditions change. So, as convincing as they seem at the time, big-picture predictions rarely work out as expected.

That is illustrated by the fact that the world hardly ever comes to an end. Yet for centuries ‘trend-extending’ has regularly predicted just such a result – based on everything from holy wars, black plague, and rising ocean levels in previous eras, to nuclear weapons proliferation, depletion of the ozone layer, and the AIDS epidemic, of more recent times.

The fault in such thinking is not only that trends continue only until conditions change, but that when trends are troubling, people and forces respond to bring about those changes.

Vaccines are developed for polio, TB, AIDS, bird-flu and mad-cow type epidemics and pandemics that periodically threaten to envelop the world, with the feared trends actually resulting not in annihilation of the human species, but in an improvement in life expectancies.

In the 1940s and 1950s, by extending the trends of population growth and food production, it was scientific fact that the world was on a collision course with massive starvation. Best-selling books like ‘The Population Bomb’, ‘Famine 1975’, and ‘Our Plundered Planet’ predicted world-wide famine by the 1970s in which hundreds of millions of people would die, with a “substantial increase in the world death rate.”

Other studies showed that even in the U.S. there would not be enough land to feed the growing U.S. population by the year 2000.

And rather than the ‘big picture’ prediction of a worldwide starvation catastrophe and substantial increase in the world death rate, in reality the global death rate declined substantially, and average calories consumed per person increased by 24%, even though the population of the world doubled.

In the U.S. widespread starvation was not only avoided, but the trend reversed to the opposite extreme; of food surpluses, overflowing government food warehouses, gifts of surplus grains to foreign countries, and even subsidies to farmers to leave fields unplanted.

Governments are certainly not immune to the fallacy of extending current trends as a means of forecasting the future, while ignoring the history.

In the 1980s, U.S. government budget deficits surged to new highs as the Reagan administration dramatically hiked government spending in efforts to pull the economy out of the stagflation malaise of the 1970’s.

Economists, extending that trend in a straight line into the future, competed with each other with dire forecasts of how soon the country would be bankrupt.

However, in the 1990s, the return of a booming economy allowed government spending cut-backs without harming the economy, which combined with a big surge in tax revenues from rising corporate profits, and capital gains taxes created by the explosive stock market of the 1990s, not only produced a balanced budget, but several years of large budget surpluses.

Not surprisingly, by 2000 the previous negative trend was forgotten and the new positive trend was being extended in a straight line into the future. Congress began making plans to spend the budget surpluses that economists were now projecting would continue for several decades. It was being projected that within ten years the entire U.S. national debt would be paid off; social security would be completely funded; and the population could be provided with full healthcare. There would even be plenty left over for tax cuts, and increased spending for defense and education.

Once again that trend only lasted until conditions changed.

The stock market plunged into the severe 2000-2002 bear market, depriving the government of the healthy capital gains taxes it had been receiving. The economy plunged into the 2001 recession. Workers lost their jobs, causing the government’s take from income taxes to also nose-dive. The 9/11 terrorist attacks took place, resulting in large increases in government spending for homeland security. The invasions of Iraq and Afghanistan followed, with their escalating costs. The picture reversed again. Budget surpluses became large budget deficits.

The 2008 financial meltdown and ‘Great Recession’ then hit, and the budget deficits grew even larger, reaching new records as massive and costly stimulus efforts were undertaken to prevent the recession from becoming a full-blown Depression.

Not surprisingly, as the budget deficits have reached record levels, economists are now extending that trend in a straight line into the future, returning to predictions that the Social Security system will soon be bankrupt, the country will face dire health care shortfalls for decades, providing school and other public project funding will be an insurmountable problem, and it will be near impossible for government budget deficits and debt to ever return to normal and manageable levels.

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